Dependent on construction?

Malta’s construction sector today has a much smaller share than it used to have and, moreover, compared to the rest of Europe, it is relatively quite small in scope.

Any outsider who happens to read the predominant narrative of Maltese media would be justified to believe that Malta’s economy is dominated by the construction industry and, what’s more, that it is becoming ever more dominated by it. One reads countless articles about the power and sway of construction magnates and about how politicians are supposed to be beholden to them.

While no one will deny that there are many developers who have an over-the-top lifestyle and that construction activity has indeed boomed, anyone who bothers to look at the data will find no evidence of this supposed dominance of the construction sector.

In fact, a simple search on the Eurostat database reveals that Malta’s construction sector today has a much smaller share than it used to have and, moreover, that compared to the rest of Europe, Malta’s construction sector is relatively quite small in scope.

Between 2003 and 2012 the construction sector averaged a share of 5.7% of overall value added. Construction is quite a volatile sector, prone to booms and busts. In fact, its share during that period ranged from 8.1% to 4.1%. At that point in time, the construction industry constituted nearly 6% of the EU’s value added, and 5.9% for the euro area. This indicates that the relative importance of construction in Malta’s economy was just under that in the rest of the Union. Construction was much more important in Spain, where it averaged over 10% of the economy, and least important in Germany, where it had a share of just 4%.

The official data show that, between 2013 and 2022, the industry’s share of total value added fell to 4.2%. Many other sectors, such as gaming, professional services, and computer programming grew at a much faster pace than construction, and took over in terms of economic importance. To give one example, in the decade to 2012 the information and communication sector was smaller than the construction sector. In the following decade its share rose to an average of 7.5% of GDP, or nearly twice construction’s share.

In fact, the decline in relative importance of the construction sector in Malta was even more pronounced than that seen in the rest of Europe. In the EU, construction’s share fell from 6% to 5.3%, while in the euro area, the drop was from 5.9% to 5.1%. In several EU Member States, the importance of construction rose. For instance, in Germany the share went from 4.2% to 4.9%, while in Sweden it increased to 6.4% from the previous 5.4%. The decline in construction’s importance was mostly felt in Southern European countries, that were very hard hit by the sovereign crisis. For example, in Spain construction fell from 10% to under 6%, while in Cyprus it nearly halved, from nearly 10% to just over 5%. In Greece the drop was from 6% to just 2%.

When compared to the EU average, the importance of construction in Malta is much more moderate. While in the decade to 2012, Malta had a share very similar to the EU average, now the share in Malta is a nearly one percentage point less than the EU average.

Another notion that is very common on local media but which is also not supported by the data is that having a large construction sector is bad for the environment. Yet, countries that are considered frontrunners in environmental issues, such as Sweden, Austria and Denmark, all have a construction sector that is much larger than that in Malta.

In these countries, policymakers have focused on making the construction sector a key player in environmental protection. This is the way forward. Construction companies need to be at the forefront of the green transformation. Rather than trying to impose burdens on them to reduce their size, construction firms need to be given the right environment and incentives to enact the required changes to reduce our carbon footprint. In this sense, we should be for more investment and change in construction rather than less.

Share of overall gross value added of the construction industry

Source: Eurostat

Photo: Life of Pix

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